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4 Healthy Stocks from an Ailing Hospital Industry

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The U.S hospital industry of late has been suffering from weak patient admissions, soaring costs, high bad debts, regulatory hurdles, etc.

Headwinds Faced by the Industry

The industry is suffering from low admissions as patients are increasingly choosing to stay away from hospitals due to high out-of-pocket (which shift the initial costs to patients) costs. Though the industry gained from a decline in uninsured rates from the Affordable Care Act (ACA), the current scenario remains gloomy.

Also, a pullback of insurers from public exchanges has increased the uninsured rate which, in turn, is hurting the players. Given the continued uncertainty about the future of ACA, the present scenario is likely to continue in the quarters ahead which will drain business volumes for the players.

Major companies like Tenet Healthcare Corp. (THC - Free Report) , Acadia Healthcare, Inc. (ACHC - Free Report) , Community Health Systems, Inc. (CYH - Free Report) have been witnessing gradual decline in their top line in the recent quarters.

Rising trend in medical costs also continues to hurt the companies. Hospitals are consolidating to reduce costs and improve negotiating power with suppliers and payers.

Noise Over ACA Repeal/Replace

President Donald Trump intended to repeal and replace the ACA as part of regulatory reform. However, the U.S Senate has rejected the bill resulting in uncertainty regarding the future of the deal. This is expected to affect the uninsured rates and weak patient volume in the United States.

Industry Rank and Price Performance

The hospital industry is currently ranked #204, which represents the bottom 23% of the Zacks Industry Rank.

The weakness in the industry is also evident from the year-to-date return of 5.9% compared with 10.7% gain registered by the S&P 500 market.

Growth Prospects

Despite these headwinds, from an investment standpoint, the U.S. hospital industry is likely to be transformed over the coming decades after the nullification of these short-term issues. New companies have started using technologically updated methods in treating patients. The regulatory reform is likely to settle down, going forward.

Moreover, as the industry moves to a payment model that incentivizes consumer value, consumer becomes a more powerful decision maker. In addition, innovative medical devices are entering the market and making surgeries and diagnostics more efficient, removing costs from the system.

Stocks to Bet On

We bring to you four hospital stocks that outperformed the industry year to date, has a solid VGM Score and a favorable Zacks Rank.

VCA, Inc. carries a Zacks Rank #2 (Buy). Despite the challenges prevailing in the industry, the company’s shares have gained 35.4% year to date, outperforming the industry. The stock has a VGM Score of B.

HCA Holdings, Inc. (HCA - Free Report) has gained 6.3% year to date, outperforming the industry. The stock has a VGM Score of A. It carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Acadia Healthcare also carries a Zacks Rank #3. It has gained 42.1% year to date outperforming the industry. It has a VGM Score of A.

Tenet Healthcare holds a Zacks Rank #3. It has gained 22.1% year to date outperforming the industry. It has a VGM Score of B.

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